Manufacturers must redesign and reform their global supply chains or global production networks (GPN) if they want to survive and prosper in the wake of the COVID-19 pandemic, a new study reveals.
The virus’s impact demonstrates that global manufacturing concerns must switch from large production sites in a single location, such as China, to numerous smaller facilities around the world to reduce business risk.
Stability, reliability, resilience, and predictability are critical in the design of global production networks that balance risk versus reward and harmonise economic value with values related to reliability, resilience, and location.
The findings of the study, which was conducted by researchers at the University of Birmingham in the UK, was published in the journal Tijdschrift voor economische en sociale geografie.
Report co-author, professor John Bryson, says: “There is a real tension between optimisation of GPN and risks which ripple out across the globe. Covid-19 is the first time that these ripples have impacted on every country and the majority of people living on this planet.
“It is unfortunate that companies, governments, and geographers did not consider the outbreak of SARS in late 2002 as a testbed to develop new approaches to the management of risk. GPNs and offshoring, come with many risks that have been ignored.
“There is a critical social science debate within geography that must move from celebrating the dominance of GPNs as an organisational form to an on-going critical reframing that accepts that a fundamental rethink is required by global manufacturing concerns.”
Using a database of 91 American companies, researchers found coronavirus highlights that the most effective GPNs balance cost control against risk – balancing production facilities in core markets against over-reliance on facilities located in lower-cost locations.
They highlight that the most common operational response amongst American firms to the US-China trade war involved relocating suppliers from China to another low-cost country. However, the impact of Covid-19 has seen firms beginning to develop strategies dealing with supply chain disruptions – with larger companies building regional supply chains, leaning more on technology for smaller firms, and focusing on efficiency and resilience.
“Globalisation is not a novel concept, but Covid-19 has highlighted the risks associated with increasing interconnectedness of people and places through economic, political, cultural, and environmental changes,” Bryson adds.
“Existing thinking on GPN design minimises costs and maximises economic ‘value’ rather than balancing profit against risk reduction – a high-risk approach that must change. We must reframe the debate on globalisation around the benefits and risks associated with deepening globalisation.”